According to economists, “day trading” is the kind of trading in which individuals are buying and selling financial instruments, such as stocks, currencies, options within the same trading day with the goal of profiting from small price fluctuations. Day trading involves significant risks which the potential trader should learn about and build a suitable strategy that will allow him to avoid the consequences.
Day traders who would like to gain from their trading strategies should have a thorough knowledge of the market. Day trading is a speedy process and the amount of money being used for buying shares can be quite large. That’s why day traders should know which stocks to trade in, when to enter a trade and when to exit it. Another factor that plays an important role in day trading as well as in any type of trading is the knowledge of using online trading tools and choosing the right online trading platform which has all the necessary requirements.
Day trading involves making profit by differentiating between bid prices and asking prices. People who indulge in day trading aim for a speedy turnover rate on one or multiple trades. This tactic allows them to gain more profit from small swings in asset values if the market moves in their favour. If the market conditions are against them, it is possible that they will record losses, taking a toll on their portfolio.
Swing trading is among the most popular forms of trading, used by traders who search for medium-term opportunities and are familiar with the various forms of technical analysis. Swing traders use technical analysis to look for stocks with short-term price momentum. The main difference of day trading with swing trading is that day trading positions last less than 24 hours while swing trading positions often last from two to seven days, and on some occasions, may last as long as 14 days.
The swing traders’ objective is to identify a trend and attempt to gain with swing trading within that trend. For this reason, knowing how to use the technical analysis is imperative for swing traders since they have to study and analyse the fluctuations of an instrument’s price. Understanding the advantages of the data coming from the technical analysis, swing traders can execute the appropriate trading strategy.
Although swing traders often go with the main trend of an instrument, some of them prefer to go against it and trade the counter trend instead. This trading strategy is called “fading”. Fading is a contrarian trading strategy used to trade against the prevailing trend. This strategy involves increased risk so inexperienced traders and those starting out should carefully consider the risks involved and investigate all other types of trading strategies before proceeding with fading.
Position traders are the complete opposite of day traders. In contrary with day traders whose positions last for less than 24 hours, position traders hold positions with a long-term target. This time period could be weeks, months or even years. While day and swing traders aim to benefit from short fluctuations on the instruments’ prices, position traders give less attention to news updates that could affect prices short-term.
Position traders often use a mix of technical and fundamental analysis to form their trading strategies and have the necessary time to perform thorough evaluations of the instruments and the assets they want to trade with. Position traders also tend to keep a much smaller number of trades in their portfolio when compared with day and swing traders.